February 12, 2019 – Further to a hearing held at noon on February 12, 2019, the Court hearing the Elements Behavioral Health case confirmed the Debtors’ Combined Plan and Disclosure Statement. The Court has not yet issued a confirmation order, but a certificate attaching the proposed order was submitted by the Debtors [Docket No. 763]. Also attached is the Memorandum of Law filed in support of confirmation [Docket No. 696].

On May 21, 2018, Elements Behavioral Health and 31 affiliated Debtors filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 18-11212 (EBH Topco, LLC). The Company, which operates treatment centers for addiction and mental health disorders has from the outset anticipated a sale of its assets to a group of its First Lien Lenders. On July 24, 2018, following the cancellation of a scheduled auction for lack of any further qualified bidders, the Court approved the asset purchase agreement (“APA”) between the Debtors and Project Build Behavioral Health (“PBBH” or “the Purchaser”) and (ii) authorized the sale contemplated by the APA [Docket No. 313], pursuant to which PBBH purchased substantially all of the Debtor’s assets for a purchase price of $65 million. PBBH was entitled to bid for, and purchase, the Company’s assets using amounts owed to it under (i) a new $14.2 million DIP facility and (ii) debt it had purchased from prepetition lenders, in each case getting a dollar-for-dollar credit for amounts outstanding. PBBH was initially unrestricted in the amount that it could credit bid, although a limit of $65 million (the sale price agreed between EBH and PBBH in their Stalking Horse APA) was subsequently established.

The Combined Disclosure Statement and Plan [Docket No. 589] explains, “The Combined Plan and Disclosure Statement is a liquidating Chapter 11 Plan. The Combined Plan and Disclosure Statement provides that upon the Effective Date: (i) Creditor Trust Assets will be transferred to the Creditor Trust; (ii) any Acquired Assets not previously transferred to PBBH will be transferred from the Debtors to PBBH, in each instance as part of a Close of Sale; and (iii) after completing all of their ordinary course business operations and fiduciary obligations, the Reorganized Debtors will be dissolved. Thereafter, the Creditor Trust Assets will be administered and distributed as soon as practicable pursuant to the terms of the Combined Plan and Disclosure Statement. To the extent any Residual Assets remain upon the Effective Date of the Combined Plan and Disclosure Statement, the Reorganized Debtors will wind down and liquidate the Residual Assets, with any proceeds from such disposition being paid to PBBH in partial satisfaction of PBBH’s senior secured liens on the Residual Assets.”

The following is a summary of classes, claims, voting rights and expected recoveries:

Class 1 (“DIP Facility Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of allowed claims is $29.9 million and the estimated recovery is 100%.

Class 2 (“Secured Tax Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of allowed claims is $0.00 million and the estimated recovery is 100%.

Class 3 (“First Lien Claims”) is impaired and is entitled to vote on the Plan. The estimated aggregate amount of allowed claims is $134,679,040.52 and the estimated recovery is 26%.

Class 4 (“Second Lien Claims”) is impaired and is entitled to vote on the Plan. The estimated aggregate amount of allowed claims is $47,512,247 and the estimated recovery is 0%.

Class 5 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The The estimated aggregate amount of allowed claims is $75,698 and the estimated recovery is 100%.

Class 6 (“Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of allowed claims is $52,312 and the estimated recovery is 100%.

Class 7 (“General Unsecured Claims”) is impaired and is entitled to vote on the Plan. The aggregate amount of allowed claims is approximately $195,128,358.87 and the estimated recovery is 0%.

Class 8 (“Intercompany Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated aggregate amount of claims is N/A and the estimated recovery is 0%.

Class 9 (“Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated aggregate amount of claims is N/A and the estimated recovery is 0%.

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